Candlestick Trading Forum
keyword search

Candlestick Trading Forum        

Learning how to play the stock market using candlestick signals

The Inverted Hammer Signal 

Learning how to play the stock marketis an endeavor that most investors never master.  Learning how to play the stock market involves controlling one's emotions.  Candlestick signals are a great benefit for the beginning investor as well as the experienced trader.  The information conveyed in the major candlestick signals is the visual depiction of investor sentiment.  Most investors' sentiment unfortunately involves the extremes of human emotions, fear and greed.  Learning how to play the stock market is an educational process.  An investor should learn the basics of why prices move.  The candlestick signals, especially the 12 major signals, involve the visual elements produced by human emotions.  Being able to correctly analyze what these emotions are doing at specific points of a trend become a valuable pool for successful investing.

The information incorporated into a major candlestick signal provides a huge advantage for those investors just learning how to play the stock market.  The result of simple visual analysis permits an investor to take advantage of high probability situations.  The major signals are created by the aspects of human emotions being put into trading decisions.  Investor psychology produces reoccurring thought processes as investors go through different stresses of a price trend.  The 12 major signals are a very important tool when learning how to play the stock market.  Understanding the investment psychology that creates each signal is an important element for understanding how professional investors think. One of the most important facets for learning how to play the stock market is knowing how to put the probabilities in your favor.  The candlestick signals create a format that does just that.  Hundreds of years of observations have resulted in reversal signals that are easy to identify.  When learning how to play the stock market, it is very important to find indicators that have a high probability of producing profits and a low probability of producing losses. This may be stating the obvious.  However, the utilization of candlestick signals is being done by a very small percentage of the investment population.  Use the major signals to start profiting from your investment decisions immediately.

The Inverted Hammer  produces some very important attributes when analyzing a potential reversal.  It is considered one of the 12 major signals.  Learn how to use an inverted hammer signal correctly. The probabilities of being in a correct trade when utilizing this signal becomes e

Description
The Inverted Hammer is comprised of one candle. It is easily identified by the small body with a shadow at least two times greater than the body. Found at the bottom of a downtrend, this shows evidence that the bulls are stepping in, but the selling is still going on. The color of the small body is not important but the white body has more bullish indications than a black body. A positive day is required the following day to confirm this signal.

Criteria
1.  The upper shadow should be at least two times the length of the body.
2.  The real body is at the lower end of the trading range. The color of the body is not important, although a white body should have slightly more bullish implications.
3.  There should be no lower shadow, or a very small lower shadow.

Signal Enhancements
1. The longer the upper shadow, the higher the potential of a reversal occurring.
2.  A gap down from the previous day's close sets up for a stronger reversal move.
3.  The day after the inverted hammer signal opens higher.
4.  Large volume on the day of the inverted hammer signal increases the chances that a blowoff day has occurred.

Pattern Psychology

After a downtrend has been in effect, the atmosphere is bearish. The price opens and starts to trade higher. The Bulls have stepped in, but they cannot maintain the strength. The exisiting sellers knock the price back down to the lower end of the trading range. The Bears are still in control. But the next day, the Bulls step in and take the price back up without major resistance from the Bears. If the price maintains strong after the Inverted Hammer day the signal is confirmed.

 

Training Tutorials
The Major Signals Educational Package  has over 8 Hours of training for trading Candlestick Signals or The Inverted Hammer  individual training video available for Quick Download.

Candlestick Forum Flash Cards   These unique Flash Cards will allow you to be "trading like the Pro's" in no time.

Return to Candlestick Explanation of the Major Signals

 

Candlestick Trading Forum